Back door Roth

[Time2]

My daughter, soon to be dentist, had a financial company come and give a seminar. She called me said, I can't put money in a Roth if my income is high? I looked up the limits and told her, then said but there is something called a back door Roth.
Then I was confused. She can put money into a non-deductible IRA, non deductible because her income is over the limit. Then she can do a Roth Conversion. But what about the taxes? Since she paid taxes on the IRA contribution, I don't think she would owe in tax on the Roth Conversion.
Do I have that correct? Do you do both of these in the same year?

 

[Retireby45ish]

Check out this thread from a few days ago

Backdoor roth and megaback door questions
https://r.tapatalk.com/shareLink/to...ead.php?t=113295&share_type=t&link_source=app

 

[tulak]

Bogleheads has a good write up on Backdoor Roth: https://www.bogleheads.org/wiki/Backdoor_Roth

And here’s link for Mega-Backdoor Roth: https://www.bogleheads.org/wiki/Mega-backdoor_Roth

I suspect that in your daughter’s case, she’ll only be eligible for a regular Backdoor Roth.

 

[kgtest]

Backdoor Roth is great when your future tax bracket will be lower or when tax brackets are lower than prior years. Contribute to IRA (or 401k then rollover to IRA), convert the IRA to Roth and pay the taxes up to say the 22, or 24% bracket. It involves a little planning and people like to do roth conversions when the market is down, so they can convert more money acquiring more roth shares then if the market was at its peak.

 

[captain3d]

If there are no other IRA accounts in profit then yes pay into a traditional with after tax dollars and immediately covert to a Roth tax free.

 

[bada bing]

Since she paid taxes on the IRA contribution, I don't think she would owe in tax on the Roth Conversion.
Do I have that correct?

Yes - with a caveat. If she also has pre-tax money in a tIRA she will be subject to the pro-rata rule which says she must proportionally convert pre-tax funds and pay the taxes on that portion. If no pre-tax funds, no additional taxes for the conversion.

Do you do both of these in the same year?

Yes, ideally the same week. Don't wait. The reason is that any gains made while the after-tax funds sit in the tIRA are considered pre-tax. They will trigger the pro-rata rule. Best to not have any more gains accrue than necessary in the tIRA. I did the backdoor Roth for the last 10 years I worked. I made the annual contribution on the first business day in January and then did the backdoor conversion a couple days later - as soon as the funds cleared.

 

[nobody]

Another option if her company offers it is to do a 401k Roth, no income limitations. Some will argue it is more tax efficient to do a regular 401k.

 

[TheWizard]

Backdoor Roth is great when your future tax bracket will be lower or when tax brackets are lower than prior years. Contribute to IRA (or 401k then rollover to IRA), convert the IRA to Roth and pay the taxes up to say the 22, or 24% bracket. It involves a little planning and people like to do roth conversions when the market is down, so they can convert more money acquiring more roth shares then if the market was at its peak.

I think you're mushing together the Back Door Roth CONTRIBUTION with Roth Conversions.
Two different things...